6 Ways Tax Returns Differ for Millennials & Boomers
Introduction
A tax return is a form you file on a yearly basis that outlines your income, expenses, and investments. The purpose is to prove you’ve met your legal tax obligations. The IRS processes over 100 million tax returns every year. While most people file tax returns, their age and stage in life will dictate the way they file them. Here are six ways tax returns differ between millennials and boomers.
1. Millennials Do Their Own Tax Returns
In most cases, millennials have simple tax situations.
“Millennials usually have a full-time job and receive a W2 form from their employer,” said Logan Allec, CPA and owner of Money Done Right. “They’re more likely to use a tax software like TurboTax or H&R Block to file their tax returns.”
Key Points
- Tax Software: Millennials often use tax software for simplicity and cost-effectiveness.
- W2 Forms: Typically, they receive W2 forms from their employers.
Baby boomers tend to have more complex tax returns. Some boomers may own a large business, have a higher income, or qualify for more deductions. Most will hire a CPA or tax professional to handle their returns.
Image Description: Infographic showing millennials using tax software for filing returns.
2. Baby Boomers Qualify for More Deductions
A deduction lowers a person’s taxable income and helps them save money on taxes. Since most baby boomers own homes, they can deduct mortgage interest from their taxes.
“Baby boomers often have deductible medical expenses. They are also more likely to purchase things like solar panels and electric vehicles, which they can deduct as well,” said Allec.
Common Deductions
- Mortgage Interest: Significant for homeowners.
- Medical Expenses: More common for older adults.
Image Description: Infographic showing common tax deductions available to baby boomers.
3. Millennials Opt for the Standard Deduction
The standard deduction reduces taxable income by a fixed amount, while itemized deductions are made up of eligible expenses. With itemized deductions, you can claim whichever permitted deduction cuts your tax bill the most.
“Since many millennials aren’t eligible for mortgage or medical bill deductions, they often take the standard deduction,” said Allec.
Standard Deduction (2020)
- Single Taxpayers: $12,400
- Married Filing Jointly: $24,800
- Heads of Households: $18,650
Image Description: Illustration of the standard deduction amounts for different filing statuses.
4. Baby Boomers Must Consider Social Security Tax Implications
Social Security can make tax returns confusing for baby boomers who are either in or close to retirement age.
“If they have a moderate or high income, they may have to pay federal taxes on some of their benefits. There are also thirteen states that impose a state income tax on Social Security,” said Peter Greco, CPA at CSI Group.
Key Points
- Taxable Benefits: Some Social Security benefits may be taxable.
- State Taxes: Thirteen states tax Social Security benefits.
Image Description: Infographic explaining Social Security tax implications for baby boomers.
5. Millennials Can Reduce Taxes by Saving for Retirement
Millennials have decades to go before reaching retirement age but can reduce their tax burden by planning ahead.
“Millennials often save for retirement with accounts such as 401(k)s, Roth IRAs, and SEP IRAs. By putting money into these accounts, they can reduce their tax liability and lower their tax bill,” said Greco.
Retirement Accounts
- 401(k)
- Roth IRA
- SEP IRA
Baby boomers who are nearing retirement can also take advantage of this tax-saving strategy.
Image Description: Infographic showing how saving for retirement can reduce taxes.
6. Millennials Qualify for the Child Tax Credit
While both baby boomers and millennials may have children, millennials are typically the ones who are eligible for the Child Tax Credit. The Child Tax Credit gives taxpayers discounts of up to $2,000 per child.
“The Child Tax Credit has increased significantly from what it was in the past and is now available to more taxpayers,” says Greco.
Eligibility
- Married Filing Jointly: Gross taxable income of $400,000 or less.
- Single Taxpayers: Income of $200,000 or less.
Image Description: Infographic showing the eligibility and benefits of the Child Tax Credit.
